Companies' stocks soar after slashing workforce

Companies looking for a way to please Wall Street and get their stock prices up have a solution: fire employees.

There are 14 companies in the Standard & Poor’s 500, including office equipment maker Pitney Bowes, defense contractor Lockheed Martin and grocer Safeway, that have methodically eliminated jobs each and every year for the past five fiscal years. And these stocks are outperforming the market both in the short term and long term.

Wall Street says it’s looking for companies that are growing and investing, yet it’s rewarding companies that are doing the opposite when it comes to the size of their workforce.

“This is what shareholders expect management to do,” says Jack Ablin of BMO Private Bank. “Do more with fewer people.”

Shares of these chronic job cutters, on average, are up 18.8% over the past 12 months. That tops the 15.5% gain by the Standard & Poor’s 500 during the same time period. And over the past five years, the job cutters are beating the market by an even wider margin, gaining an average 269% while the S&P 500 is up 103%.

An equal-weighted index of these job cutters shows how they’ve easily topped the S&P 500 over the past five years:

Chart source: S&P Capital IQ

Below is a list of the five companies that not only reported a smaller workforce each out of the past five years, but that also cut the largest percentage of employees over the past five years (the full list of the 14 chronic job cutters is at the bottom of this post):

Stock

Symbol

% headcount reduction past 5 yrs

Stock price % ch. past five years

Motorola Solutions

MSI

-67.2%

50.3%

Macerich

MAC

-64.6%

248%

General Growth

GGP

-57.1%

2,429.7%

Apartment Investment

AIV

-57.1%

249.8%

Pitney Bowes

PBI

-54.2%

12.9%

Source: S&P Capital IQ, USA TODAY research

Some of the job reductions may not necessarily be the result of firing workers, but rather restructuring and divestitures. But a more powerful force yet are productivity gains caused by companies replacing people with technology, Ablin says.

The biggest stock gainer from reducing jobs this year is Pitney Bowes. The company has slashed its workforce in half to 16,100 in the most recent annual report from 35,140 five years ago. Most of the big cuts came in 2013, when the workforce was cut by 41%. But over the past 12 months, shares of the company are up 73%.

Defense contractors Lockheed Martin and Northrop Grumman have also been persistent job cutters. Lockheed Martin, for instance, has taken its workforce down 21% over the past five years, including a 4.2% cut in the latest fiscal year. But investors have pushed shares up 60% over the past 12 months.

It’s not just a theory. Shares of struggling office supply store Office Depot soared 16% Tuesday to $4.82 after announcing plans to shutter 400 stores, having an untold negative effect on jobs.

What’s going on with the S&P 500 reflects the trend in the broader economy, Ablin says. Profit has outpaced sales for years, largely due to cost cutting his says. And larger companies continue to see job growth stall to drive profits.

It’s a reminder of how it’s not existing companies that are the engines of job growth, he says, but new ones. Large companies “continue to shrink their workforces,” he says. “Perhaps we just need more companies.”

How the S&P 500 companies that reported a lower number of employees in each and every of the past five fiscal years are performing over the past 12 months: